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Thursday, October 10, 2013

Trends in farmland rental rates for 2014

By David Bau, Extension Educator
University of Minnesota Extension

What are the trends in farmland rental rates and where are they going in 2014? There are many places to find relevant information. The "Cropland Rental Rates for Minnesota Counties" publication prepared by Gary Hachfeld, William Lazarus, Dale Nordquist, and Rann Loppnow utilizes the FINBIN data base with historic information from an adult farm management data base. You can find the publication at two different websites: the Center for Farm Financial Management website under publications, and the Southwest Research and Outreach Center website under research and outreach.

In the "Cropland Rental Rates for Minnesota Counties" publication, the average annual change in rental rates by region from 2011 to 2012 from FINBIN data indicated a 8.9% increase in Northwestern Minnesota, 18.4% increase in West Central, 13.4% increase in Central, 18.0% increase in Southwest, 19.9% increase in South Central and 18.6% increase in Southeast Minnesota. Combining the regions, it would be a 17.8% increase in farmland rental rates across Minnesota from 2011 to 2012, up from the 13.1% increase the previous year.

The Minnesota Agricultural Statistic Service indicated an 11.1% increase across Minnesota from 2011 to 2012 and an 18.0% increase from 2012 to 2013. The Iowa survey data indicated in 2013 the average Iowa farmland rent increased to $270 up from the $252 average in 2012 and from $214 per acre in 2011, with all 9 districts recording an increase in average rental rates.

Cropland rental rates can vary significantly due to many factors including crop returns based on current grain prices and projected yields, land quality, tile and drainage on the farmland, the federal farm program, previous crops, herbicides and fertility, use of facilities, length of contract and other factors. In the "Cropland Rental Rates for Minnesota Counties" publication, you can also see the average rents for the bottom 10 percent and the top 10 percent to give you a range of rents paid in the county along with the median rent for each county. This publication is a helpful tool to use when determining rental rates.

The continued high prices in the grain markets continue to put pressure on rental rates to increase for 2013 but the current prices for 2013 and 2014 corn are much lower than one year ago. On October 11, 2012 Lamberton, MN cash bid for 2012 corn was $7.38 and for 2013 corn $5.79 as of October 9, 2013 the cash bid for 2013 corn was $4.18 and for 2014 corn $4.35. Assuming 175 bushels of corn produced in each year, with all crop sold out of field, the gross revenue would be $1,291.50 for 2012, $731.50 for 2013 and $761.25 for 2014.

Southern Minnesota actual yields were lower than 175 in 2012 and maybe higher in 2013, but yet to be determined for 2014. The total expense, including direct and overhead expenses, to produce an acre of corn in 2012 for over 1000 southern Minnesota farmers was $778.63 per acre paying $200 per acre rent. If a farmer achieves 200 bushels in 2013, gross revenue per acre would be $836, if expenses stayed constant, the farmer would make $57.37 profit. But for the last 10 years input costs have increased 9 percent per year, so the $778.63 expense for 2012 would increase to $848.71 in 2013, below the total revenue projection. If you apply the 9 percent again for 2014 total expenses would be $925.09 with total revenue projected at $761.25 for 2014. This would indicate a loss of $163.86 per acre.

Soybeans expenses in 2012 were $472.23 with rents at $192 per acre. Using a 7 percent increase in input costs, the average increase for past 10 years for soybeans, 2013 expenses project to $505.28 in 2013 and $540.66 in 2014. Lamberton, MN soybean prices on October 11, 2012 were $14.72 for 2012 soybeans and $12.68 for 2013 beans, while on October 9, 2013 prices were $12.43 for 2013 and $11.06 for 2014. Using these prices with assumed yield of 48 bushels per acre, gross revenue would be $706.56 in 2012, $596.64 in 2013 and $530.88 in 2014. So beans make a profit in 2012, 2013 but have a loss of $9.78 for 2014.

The average rents for the fourteen counties in Southwest Minnesota were $160 in 2010, $177 in 2011 and $209 in 2012. For the previous five years, rents in Southwest Minnesota have increased an average of 12.1 percent each year. If you apply a 12.1% increase for 2013 the average goes up to $234 and for 2014 using 12.1% percent increase again, applied to 2013 rate, the average rent for Southwest Minnesota would project to $263 for 2014.

Can farmland rents continue this increasing trend in 2014? The projected 2014 corn and soybean total income and expenses would indicate a loss at current cash forward contract prices available using historic yields. If prices increase or farmers are able to get better yields in 2014 than projected, it would be possible to pay these trending higher rental rates, but based on the current corn and soybean prices for 2014, there is a real potential for farmers to lose money. If this occurs it should cause lower or flat farmland rental rates in 2014 as compared to 2013.